Airbnb (NASDAQ:ABNB) has been on a roll in the past several months. Its IPO on Dec. 10, 2020, was at $68 and the first trade for ABNB stock was at $146. So at its price on Feb. 12 of $212.68, it was already up 45.6% since it started trading. In fact, it was up 45% year-to-date and continues to look unstoppable.
I believe that ABNB stock is still worth at least one-third more or $283 per share. This is partly based on the method I used in my last article on Jan. 12 when I argued that Airbnb was 55% undervalued. I felt the valuation was worth $195 billion, or 55% above the Feb. 12 price, or $329.15.
Nevertheless, based on recent numbers I have lowered this valuation a bit to just 33% over the Feb. 12 price. This is based on the same methodology – comparing the take rates of both Airbnb and Square (NYSE:SQ) and adjusting their valuations.
Comparing Airbnb With Square
Both of these companies earn revenue in a similar manner. They have basic business models that are comparable. They do not have inventory and do not buy inventory, but they take a commission on inventory. Square’s inventory is its transactional volume or gross payment volume (GPV). Airbnb’s commissions are based on bookings, which it calls gross booking volume (GBV).
For example, Square makes a “take rate” on the GPV of transactions that its seller side and cash app facilitate. In Q3, Square made $3.03 billion in net revenue on its GPV of $31.7 billion. Therefore, its take rate was about 1% during the quarter.
Similarly, Airbnb had a take rate on its $38 billion in GBV. Since net revenue was $4.8 billion, its take rate was 12.6%. This is significantly higher than Square’s 1% rate.
So far, both companies have not yet released their Q4 2020 revenue, earnings and take rates. Both will likely release their numbers during the last week of February. However, for the time being, it appears that Airbnb enjoys a 12 times more powerful business model. Its take rate is 12.6% versus the 1% at Square.
Therefore, whatever price-to-sales ratio that the market puts on Square should be multiples higher at Airbnb. I believe it should be between 4 to 5 times higher to account for its premium take rate business model. A dollar of booking revenue is worth more at Airbnb than $1 of transaction revenue at Square.
What ABNB Stock Is Worth
Square is trading on a forward price-to-sales ratio of 9.3 times for 2021, according to Seeking Alpha’s survey of analysts.
That implies that using a 4 to 5 times multiple, Airbnb should have a multiple of between 37 and 46.5 times revenue. This year analysts expect $4.5 billion in revenue in 2021. This means its market value should be between $167 billion and $209 billion.
Given that ABNB stock has a market value now of $125 billion, the low-end target value of $167 billion is 33% above the Feb. 12 price and as high as 67% above. The low-end puts its target price at $283 per share, and as high as $355.
What to Do With Airbnb Stock
I suspect that many of them are waiting for the Q4 2020 and full-year earnings reports from Airbnb. This will effectively be their first public earnings and will allow these analysts to scrutinize the company further.
Nevertheless, the fact remains that the quality of Airbnb’s business model deserves a much higher rating than a company with a similar model, Square.
My guess is that over time the market will realize this and move ABNB stock at least one-third higher to $283 per share. This may take some time or could happen right away especially after the earnings come out at the end of this month.
On the date of publication, Mark R. Hake holds a long position in SQ.